It is important to have an overview of the economy by performing economic analysis. Also, fundamental and technical analysis should also be performed. This is necessary because it is essential to know and anticipate that little volatility is to be experienced over the life of the short call synthetic straddle.

The trader who executes a short call synthetic straddle anticipates little to no volatility in the price of the underlying security. When that happens, the trader stands a greater chance of earning a profit. Since the shape of the payoff curve is an inverted “V” shape, the maximum profit occurs at only 1 price point, that is, the exercise(strike) price of the calls.

As the price of the underlying security moves above the upside breakeven point or below the downside breakeven point, a loss is realisable. While profits are limited to the net credit, the losses are unlimited.

The profit in a short call synthetic straddle, much like a short straddle, is capped and limited. The maximum profit occurs when the price of the underlying security is equal to the strike price of the call options. At that price point, the options will expire worthless and the long stock will breakeven without profit or loss. As a result, the trader gets to keep the net credit as profit.

For a profit to be realisable, the price of the underlying security must trade between the downside and the upside breakeven points.